Private insurers pay hospitals more than double Medicare rates

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Dive Brief:

A new from RAND details what most in the industry already know: Private plans typically pay hospitals far more for services than Medicare does. Researchers examined payment and claims data from 2015 to 2017 representing $13 billion in healthcare spending across 25 states at about 1,600 hospitals.

The study authors looked at relative prices, defined as what private insurers pay as a percentage of Medicare prices, and found they increased from 235% of Medicare in 2015 to 241% of Medicare in 2017.

Relative prices had wide swings among different states and even within health systems, ranging from 150% of Medicare to more than 400% of Medicare. The study also comes with a detailed data spreadsheet showing the prices paid to individual hospitals.

Dive Insight:

Most Americans receive their insurance coverage from their employers, and as those companies continue to struggle with the high price of healthcare, the RAND study suggests new ways to negotiate prices.

The study authors recommend employers consider moving away from discounted-charge contracts to reimbursement based on a multiple of Medicare rates. This could save employers money and eliminate price variation.

"Discounted-charge contracts are relatively simple and have historically been common, but they allow wide and unwarranted variation in prices, and they leave employers and their plans vulnerable to aggressive inflation of charges by some hospitals," they wrote.

The study comes as Democratic presidential hopefuls are pushing for universal health coverage for citizens by expanding Medicare to more Americans than just seniors.

The American Hospital Association took issue with the study, and said the report's sample size was small and represents 2% of Americans with employer-sponsored coverage. AHA also warned that Medicare rates are too low and relying on them alone could lead to dire consequences.

"Simply shifting to prices based on artificially low Medicare payment rates would strip vital resources from already strapped communities, seriously impeding access to care," the group said in a statement Thursday. "Hospitals would not have the resources needed to keep our doors open, innovate to adapt to a rapidly changing field and maintain the services communities need and expect."

Fed up with the cost of healthcare and lack of improved results, some employers have decided to cut out the middlemen and negotiate directly with health systems.

General Motors in Detroit now contracts directly with the Henry Ford Health System, and the contract stipulates quality and price measures. In April, General Motor's head of healthcare, Sheila Savageau, said the car company's contract was holding Henry Ford accountable to a zero trend in terms of medical cost increases.

In 2019, employers expect the total cost of care to be about $15,000 per employee, according to a survey conducted by The National Business Group on Health. Employers are on the hook for about 70% of that cost, according to the survey.